In its latest "Metals Weekly" report published on January 23, the commodity research team at JPMorgan—led by Gregory Shearer—presented a less-than-optimistic assessment: while copper prices remain elevated, the fundamental support underlying them is noticeably weakening. According to the report, the primary reason copper prices have managed to hover around $13,000 per tonne since the start of the year is more attributable to macro-fund flows and market sentiment than any genuine improvement in physical supply and demand. As inventories concurrently rise in both Chinese and overseas markets, this divergence—where prices outpace fundamentals—is becoming increasingly difficult to sustain. Chinese refined copper output has hit record highs, while inventories are experiencing an unseasonal surge. The report dedicates significant attention to the situation in China. On the supply side, conditions are not particularly tight. In December 2024, China's refined copper production reached approximately 1.18 million tonnes, a 7.5% year-on-year increase, with rising scrap copper imports providing additional raw materials for smelters. However, the issue lies downstream.

The report describes not a "cliff-like decline," but a more subtle and troublesome scenario:

Downstream orders remain weak. Procurement behavior has clearly shifted towards a "hand-to-mouth" approach. The operating rate for cathode copper rod plants has fallen below 50%.

The result is an unseasonal inventory build. Since late November, copper inventories in China have accumulated by over 118,000 tonnes, reaching approximately 300,000 tonnes—more than 200,000 tonnes higher than the same period last year and significantly above the five-year average. Notably, this inventory accumulation is not occurring against a backdrop of surging imports. On the contrary, China's net imports of refined copper in December fell by roughly 50% year-on-year, while exports remained relatively high. Based on this, the report concludes that the rising inventories primarily reflect a deliberate postponement of domestic procurement in response to high prices. Around the Lunar New Year: Data becomes "distorted," leaving inventories as the key metric. The report's outlook for the coming month or so is notably restrained. With the Spring Festival falling on February 17th, Chinese macroeconomic and industrial data will enter a period of limited visibility. JPMorgan explicitly cautions that obtaining a "clean" reading on demand around the holiday period will be challenging, forcing the market to rely on inventory changes for indirect assessment. The problem is that inventory levels are already elevated as we enter the Spring Festival period. Historically, copper inventories typically peak 5-7 weeks after the holiday, with an average seasonal accumulation of around 250,000 tonnes over the past five years. If this pattern repeats, Chinese copper inventories could potentially exceed 500,000 tonnes by mid-to-late March. This also implies that China may enter the traditional peak demand season in the second quarter with a substantial inventory "cushion" already in place. Overseas: The LME forward curve has already cast a "vote of no confidence." Signals from outside China are also weak. The report mentions that the COMEX/LME arbitrage structure has reversed at the front end, causing copper to flow back into LME warehouses in the United States, where inventories rose by over 10,000 tonnes in just one week; concurrently, nearly 20,000 tonnes were delivered into Asian warehouses. Driven by the inventory rebuild, the LME copper forward curve has rapidly shifted from a deep backwardation into contango:

The cash-to-three-months spread has reversed from nearly $100 per tonne backwardation to a contango of approximately $75 per tonne.

This is a classic signal that "fundamentals are speaking." The more aggressive bullish narrative has been temporarily put on hold. JPMorgan does not entirely dismiss the longer-term bullish thesis. The report still suggests that if the US ultimately moves forward with phased import tariffs on refined copper, significant dislocation between COMEX and LME could re-emerge, potentially triggering another round of inventory drawdowns and price spikes. However, the team simultaneously emphasizes that this narrative is unlikely to gain traction, at least around the Spring Festival period—because it ultimately still depends on China resuming its role as a major buyer. Until then, the team's judgment is:

Copper prices face near-term correction risks driven by fundamentals. However, they may still find temporary support around the $12,000 per tonne level.

It's not just copper: Aluminum and zinc are also facing the New Year with high inventories. Finally, the report broadens its perspective to include aluminum and zinc, reaching unsurprising conclusions. For aluminum, Chinese inventories increased by approximately 165,000 tonnes within a month, reaching about 740,000 tonnes—250,000 tonnes higher than the previous year; zinc inventories stand at around 110,000 tonnes, roughly double the level from a year ago. Both metals exhibit characteristics of price sensitivity, weak demand, and an early inventory build-up. JPMorgan's implicit judgment is that if the destocking pace for these metals after the Spring Festival is slower than the historical average, the market's assumption that "demand is merely delayed" may need to be re-evaluated.